10.4.11 Update

Click on chart to see them in more detail.

Today we got down to 1074 on SP500 but it was a quick reversal at the end of the day.  Tom O’brien thinks the market will continue the bounce big time tomorrow.  He said a case could be made that in the short term the market could get up to 1294.  He still thinks longer term that it will get down to 825 to test a swing low.  He mentioned the very low tick and high trin on Monday as signals that the market was ready to turn.

I mentioned that the market would get down to 1000 or so this week and then bounce to form a right shoulder.   The timing was based on M3 and other analysts.  The timing for the 1000 low may be postponed, but I am sure it will get down there at some point, as I explain below.  As I mentioned yesterday, Monday’s low did not get below the August low (missed it by a couple of pennies).  But today, despite the heavy volume, it got below the low of 8.9.11 but with less volume.  The volume of 8.9.11 was 724 million and today was only 458 million.   That means there were fewer sellers today than in August.  When selling dries up, the market goes up.  It should try to get above the 8.9.11 candle which on the daily is 117.03 and  119.5 on the weekly to try to “reset.”   One thing that could fuel such a bear market rally is if the money comes out of bonds.  But today’s volume is much higher than normal so it would need to be tested again to see if there are even fewer sellers.

Eventually, the SP500 has to get 98.63.  The reason, as shown in the chart below, is that the candle with the orange arrow took out the low of the candle with the purple arrow and did it on more volume.  What taking out the swing low on volume means is that when the market came back to that level it had more sellers there than it did the first time it was there.  There is also much less volume when the market was going up (yellow shaded area) than when the market was coming down (orange arrow).  In other words, there are more sellers at that location than buyers and it is an imbalance in sellers and buyers.  The market will come back to the level at some point to test it to see if it is still imbalanced.  So the low of the candle with the orange arrow will be tested.  After that test the market may then bounce to form the right shoulder of the head and shoulders and then down to 825 and then 2009 lows.  Thus, in my opinion, the market drop to 1000 or so has not been avoided, it has been postponed.  We will have to see if the trendline I have pointed out before and showed again yesterday, will hold as resistance for the market.

Tom O’brien, usually a gold bug, says to stay away from gold right now.  They may bounce with the market bounce but will fall again.

Market Update 10.3.11

For all the charts below, click them on to see them in better detail.

In my last post about a month and a half ago, 8.16.11 update, I mentioned that in early August the market did a hammer candle on the weekly which would need to be tested at some point in the future and it was tested today (or at least a couple of pennies off).  We don’t know yet the weekly volume for this week though so we don’t know if it will be on greater volume or less volume.  This was the chart that was posted at that time.

I also stated that on the daily chart there is a trendline that was pretty good at resistance.  Here is the chart that I posted.

Here is the updated chart (no change in annotations).  As you can see the trendline still acted as good resistance over the last month and a half.  Even when the SPY was able to get above it, it seemed to rest on it, as though it were tired, and then promptly dropped back underneath.

So the question is – where do we go from here?

I hope you have clicked on the links at the right to see what the gurus have said for themselves.  Tonight I want to focus on what the guru at M3 has said.  He has been on fire recently.  In his recent post he laid it out as to where the market is going and it is pretty much consistent with my take on the charts.  Here is his recent post:

http://m3financialsense.blogspot.com/2011/10/cataclysm-begins.html#links

In it he states the SPX will get to 940 to 1000 this week.  He states that the dollar is going to go up, up and up in a long period of deflation.  He recently gave a very good interview in which he talked about the fundamentals more and how to protect yourself.  Among other things he said in the interview (link to it below), he stated that gold will go to about $550 and silver $2-3 and the stocks will go down significantly.  He also warned about the index funds (or the short funds) that use leverage like the profunds or rydex funds because they use derivatives that could explode.  Basically the only thing going up will be cash and cash (in a safe place) will be a good trade.  Then you can scoop up all the bargains when the assets hit rock bottom.  The next year or two will be very dangerous time for investing and if he is right, people should start holding cash in their homes because banks could go under.  Here is the link to the discussion which is a must viewing for everyone.  Because of the interview I went out and bought Conquering the Crash by Robert Prechter who is a deflationist too.

http://m3financialsense.blogspot.com/2011/09/video-update.html

As I stated, his analysis reflects an interpretation of the charts that I have.  I don’t think the great washout will happen right now but I do think there is some more downside.  I could see a case where the Dow eventually gets down to about 1900.  Why?

First, lets look at the SPY.  On the chart shown below, we see that the SPY could be forming a head and shoulders top with a neckline at 1000.  After it hits 1000, it would then bounce up to about the same level as the left shoulder (around 1185) before going back down to the neckline.  It will be interesting to see if that trendline in the chart above holds the rally that time too).  The height of the head is approximately 350 points which when subtracted from the level of the neckline of 1000 would take the SPY (actually the numbers I am using are for the SPX not SPY but the same analysis would hold) down to the March 2009 lows of about 650.

I have seen similar head and shoulder patterns developing in the indicies or funds for other countries too.  For example, MXF, the Mexico Fund, could be ready to form a head and shoulders pattern too.

After the market gets back to the 2009 lows, it would set up another head and shoulder pattern most clearly seen in the Dow.  As shown in the chart below the neckline of this head and shoulders pattern is the March 2009 low.  If and when it breaks that low the down would have a target of about 2000.  See the video put out by Elliot Wave International they are the ones from whom I saw the Dow head and shoulders (The 1800-1900 test is not from there though).  Just scroll down and click on the video on the left.

http://www.marketclues.blogspot.com/

But I come up with the 1800-1900 number a different way as well.  As you can see from this monthly chart on the Dow, it made a high volume low during the month of October 1987, the big stock market crash when it reached a low of  1800ish.  That high volume low represents an imbalance in the demand and supply of stocks.  More volume was coming down than was going up before it.  To rectify that imbalance the October 1987 low would need to be tested on lower volume to show that selling has dried up at that level.  So a case could be made that as the economy deflates to get rid of all the leverage in the system, it will go back to 1800-1900 level when the economy was flooded with credit to get the market over the 87 crash.

To sum up, we continue to go down to 1000 on SPX (M3 gives a lower target of 940 to 1000) and then bounce to form a right shoulder.  this would be the last time you have to unload any longs before we go down to the March 2009 lows (possibly for reasons laid out in the interview linked above), and then finally to the level of around 2000.

After that?  Well, I’ll have time to look into that further if and when we get there.  But a couple of possibilities for the cynics out there – (1)  google the words “401k confiscation” or “IRA confiscation” and you will see one scenario in which the government deems stocks too risky for retirement accounts and states that all 401ks and IRAs (or what is left of them) need to be invested in government debt with a 100% penalty for early withdrawal and (2)  then when everyone is on a fixed income the powers-that-be start hyperinflation to completely wipe out everyone.  But that is the cynical view.

If you found this post helpful, leave a comment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Update 8.16.11

As everyone knows the Short Term PTB indicator from Thursday did not work out.  I was unable to provide any updates to the Short Term PTB indicator after Friday because my service was out.  I should have posted Monday’s after-market and today’s pre-market short term PTB indicator because they looked like they were close.  The indicator tonight after the market closed is mixed.  It seems to show a range from yesterday’s high to about 118.5.  Let’s see if it stays within that range tomorrow.

As for the charts, remember we hit the target on the SPY when we got to 113.  Thus, the market is free to start doing something else.  But I think it is just getting more energy to make further lows.   It might take some time.

On the weekly, you can see the hammer which can be a turn-around point in the market.  That hammer low would need to be tested at some point because it has such high volume.  And for the market to make a good move to the upside it will need more volume.  It is moving into a high volume candle from two weeks ago.

On the daily, I was going through some of my old charts and found the following.  It is interesting to me how the trendlines that contained the move before contained the down move last week.

The market will have to test the high of Monday on the 15 minute chart because it was on high volume that took out another 15 minute candle on more volume.  So we still have some work to do on the upside.  I hope to revisit some of the charts of the individual stocks profiled here earlier – maybe this weekend – time permitting.  But in the meantime, here are some charts that were easy to find.

TEVA – TEVA pharma.  These two charts are the weekly and monthly charts for TEVA.  The analysis still holds.

IYR – real estate.  On daily chart you can see the previous analysis has been working well.  IYR closed that gap in pink.

On intra-day chart, you can see it is following the curved blue trendline up.  Watch for a pre-mature break below the blue trendline (currently forming plenty of negative divergence). Otherwise it will follow the blue trendline over the peak which interestingly happens after the Fed meeting on 8.26.11.  The date of the peak (assuming the market holds up to the time) makes me wonder if the market will hold up through the meeting and get bad news at the meeting (e.g., no QE3?).  Fed may be under pressure now that Gov. Rick Perry stated it would be treason to do QE3.

Short Term PTB Indicator

As everyone knows the Short Term PTB Indicator did not provide the results – yet.  With the volatility experienced earlier in the week, the Short Term PTB indicator target was achieved the very next day.  But the indicator’s target in previous weeks took between 1 and 3 trading days to achieve the target.

On Thursday, the final 15 minute candle was the high of the day and it was huge volume.  The high of Thursday (shown with yellow shading) was then tested two times friday and each time it was tested on less volume.  (first green arrow and then blue arrow).  It might still have to close the gap (in pink).  But the volume analysis shows the move up is losing steam.

Also on the daily chart, the market got above thursday high on less volume and closed below it, which according to Tom O’brien’s methodology would indicate that it might be the end of the upmove.  If it happens to get up Friday’s high we would want to see even less volume than friday and a close below Friday’s high.

I don’t thin the short term PTB indicator gave a false reading Thursday, at least not yet.  The news from zerohedge indicates that European banks may be facing a credit crisis:

http://www.zerohedge.com/news/liquidity-options-running-out-european-banks-liquidity-crisis-scene-set

http://www.zerohedge.com/news/lack-offshore-dollars-reflected-widest-spread-between-socgen-and-jpm-libor-fixing-early-2009

I don’t know if something will happen by Monday, but if it does then the Short Term PTB indicator could still work out this time.

Short Term PTB Indicator

I’ve mentioned the Short Term PTB (Powers that Be) Indicator that i have been testing.  And over the last four days or so, it has been nearly perfect at predicting the day-to-day moves (sometimes it happens over a couple of days).  The indicator is still being tested, but I thought that I would mention that it indicates a price of about 112 on the SPY.  So it looks like over the next couple of days (or maybe even tomorrow based on the way this market has been working) we will be going down.

Also, I note that the SPY has to test the recent lows because of the high volume at those lows.  Whether it tests that now or “at some point” in the future, I don’t know.  However, I still think that we will probably go down to about 1010-1020 between now and 8.26.11 (the date of Fed’s retreat at Jackson Hole, Wyoming) at which time they will announce formally QE3.

Part of the reason for this belief is that a few European countries banned short selling for 15 days (or until 8.26.11) which indicates a lack of confidence in those markets.  Additionally, from what I have heard from Zerohedge.com some italian banks have had mini-runs on them.  So we should watch European banking problems for indications of a move between now and Fed’s Wyoming retreat.

 

The bounce is here!

The following link was a blog post from a couple of months ago and he called it very well.   I find his analysis to be so good, I think that I will adopt it here as the current outlook.  He says the market would bottom mid-August (at a level that looks to be around 1020) and then bounce to the 200 moving average.  After that the market would continue down even with QE3.

The best part is that if the market plays out as his chart (particularly the last chart) shows, it could then set up a larger head and shoulders pattern with a target of about 700.  But well cross that bridge when we get there.  He says the market will continue down until mid to late 2012.

Terry Laundry states the market will continue down until around 2013.  It won’t go straight down.  Previously, he stated that October will, from a cyclical point, be a good buying opportunity.  Thus, I am sitting out this bounce and might go long in October.

Tom Obrien still thinks the market (SPY) will hit 825 but now he is talking about it going into the March 2009 lows because it is coming down with more force than what we say in 2007-8.  In fact, in my opinion, didn’t get much of a bounce at 1200 because the volume accelerated and came down with about the same as the volume of April 2010 big volume candles on the weekly.  I didn’t think it could get that much volume to do it.

http://www.minyanville.com/businessmarkets/articles/market-bear-market-secular-bear-market/6/16/2011/id/35211Marc Faber also states that QE3 will likely wait until SPX 1010.  And he stated that any bounce should be a time to lighten longs.

http://www.zerohedge.com/news/marc-faber-best-thing-fed-could-do-markets-wold-be-collectively-resign

In essence, it seems the technical gurus, are starting to come together on their opinion.

Bill Gross, from PIMCO, stated that he expects QE3 at the chairman’s retreat in Jackson Hole later this month.  Which would work well with the overall view of the market.  We get a small bounce then drop through the rest of the month to about 1010-1020 SPY which would occur at the time of the retreat and we get QE3.  See minyanville article for rest.

Even if we bounce, look out below!

After today’s action, i guess the cynics win the day.  The powers-that-be took the market down all the way to the target of 113 (and then some) on the SPY.  Tomorrow is the fed meeting.  I wouldn’t be surprised to see the Fed suggest a possible QE3 tomorrow to cause a bounce.  But at this point, I think it would be just talk and not the start of the actual program.

With the way the administration is talking it seems they (still) want large tax increases.  The debt deal was a failure but it will appoint a super committee that will determine future spending cuts (or future tax increases) that everyone will have to vote on in a yes/no vote.  If Congress votes no, from what I have heard, Dept. of Defense and Medicare will take an immediate hit.  It is the same extortion racket that local governments run (if you don’t vote for new taxes, we will have to lay off the police and teachers, you don’t want that do you?), but on a national scale (if you don’t agree to tax increases, we will leave the country defenseless and the seniors on the street to die, you don’t want that do you?).

So I think the government is still angling for more taxes and given the market reaction to the debt deal, the lower the market goes, the more likely the sellouts in Congress will give in to the extortion.  So any bounce here from a Fed announcement of a possible QE3, will likely be short.  After the bounce I think we will continue downward and then Congress will pass the tax increases to “save the military and seniors” and then the Fed will push up the markets with a QE3.  At least that is the current cynic viewpoint.

The cynic viewpoint is also likely due to major markets around the world.  Below are several charts from Chinese companies.  Each of them have head and shoulder tops.  while the US market just finished a Head and Shoulders top formation, these Chinese stocks have yet to break the neckline.  If these necklines break, the Chinese market could be in for a tumble and I think with it stocks throughout the world.

http://stockcharts.com/h-sc/ui?s=SOHU&p=W&yr=3&mn=0&dy=0&id=p89527069603&a=241268931&listNum=25

http://stockcharts.com/h-sc/ui?s=SINA&p=W&yr=3&mn=0&dy=0&id=p76678115301&a=241268915&listNum=25

I don’t have a chart for it yet, but check out Home Inns and Hotels (a chinese stock) going back two years for a beautiful head and shoulder top.  So beautiful (and it just broke), I might short that one.

While not technically a head and shoulder, still not good to break that trendline:

http://stockcharts.com/h-sc/ui?s=FXI&p=W&yr=3&mn=0&dy=0&id=p62157513942&a=241268886&listNum=25

http://stockcharts.com/h-sc/ui?s=CTRP&p=W&yr=4&mn=0&dy=0&id=p89296818271&a=241268551&listNum=25

volume suggests much more work to the downside for this Chinese company:

http://stockcharts.com/h-sc/ui?s=LFC&id=p65050506264&a=241268374&listNum=25

But chinese stocks aren’t the only ones.  Here is an Indian ETF-type investment that contains many Indian stocks and it is doing a descending triangle to take it back down to the gap:

http://stockcharts.com/h-sc/ui?s=IFN&p=W&yr=4&mn=0&dy=0&id=p61182060694&a=241269322&listNum=26

And Cognizant Tech., a large Indian IT firm is doing a head and shoulders:

http://stockcharts.com/h-sc/ui?s=CTSH&p=W&yr=3&mn=0&dy=0&id=p59185233714&a=241269411&listNum=26

http://stockcharts.com/h-sc/ui?s=REDF&p=W&yr=3&mn=0&dy=0&id=p51039414789&a=241269535&listNum=26

I hope I am wrong about all of this.  However, i posted about the uranium stocks taking a beating based on what I saw in the uranium charts and then Fukushima happened.  I see bad news in the Chinese and Indian stocks.  That could affect worldwide markets.

Good luck out there!

I love it when a plan comes together!

I updated the post to show the chart at the bottom which disappeared on me.

 

I really have had nothing to write about for the last month as I was waiting for the right shoulder of the head and shoulders pattern (see last post) formed.  It broke the neckline and dropped quickly.  I realized the links that I have been posting are automatically updated so you can click on the link in the last post about a month ago to find the update chart.  On that last post, I suggested the target would be about 111 on the SPY.  I would like to correct that and suggest the target to be about 113.  The reason for the change is that previously I calculated the target assuming a horizontal neckline and this one is sloping upward slightly.

If you have followed this blog for a while, you know that I have repeatedly said that the market, soon or later, will get down to 120 on the SPY.  I thought it might happen in the spring time but when that didn’t happen, I said it would likely happen during the summer.  Here we are or close enough anyway.  The reason for the 120 on the SPY can be found on this chart I first posted on 3.15.11 (specifically the notes in green and blue): 

So what now?  because of the high volume of the May 2010 candle (shaded in yellow above), this would be a good place to bounce before we continue down to the head and shoulder target of about 113.  I would try to go long because the bounce may not be very long.

An alternative is that we continue to drop to Tuesday (8.9.11) which is the Fed meeting.  A cynical person could view this as an attempt by the powers that be to manipulate the market to induce the Fed to start QE3.  I don’t think the Fed would start QE3 on Tuesday, but they may state that they will consider doing so if the market weakness continues.  That could put a floor under the market and lead to a bounce then.  If the market waits until then to bounce, the bounce would likely be much larger.  I still would not go long, but I might exit my shorts and put my shorts back on at higher levels.

As for cycles:  Martin still seems to think market psychology will induce people to move from bonds to stocks propelling the market much higher.  Terry Laundry at Ttheory.com thinks the market will continue down for the next couple of  years (not straight down), but that October may be a time when a good buy-in point starts.

Here is current near term outlook:

http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=10&dy=0&id=p11742003254&a=219636269&listNum=18

Stockcharts screwed up again.  I had thought I figured out how to post the picture.  But when I checked this morning the bottom chart wasn’t there.  To make sure the readers have access to the chart, I posted the link above.  One of these days, stockcharts will work.  So far it is following the outlook pretty good.

SPY daily

updated chart SPY daily chart below.  The July low looks like it might have come in a bit early from Terry’s forecast.  But a head and shoulders formation is still in play.  see chart.

http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=8&dy=0&id=p02959293522&a=220704346&listNum=18

Brief note

In my last post, I plotted out an orange dashed line as one possibility.  I plotted it out to bottom on July 1 coincident with Terry’s expected July low and touching the bottom trendline.  Both of these event occur in the neighborhood of 1210 on the SPY.  However, given the two up days on low volume I don’t think it will make it all the way to the bottom trendline again.  I think we can expect a retest of the recent lows and hopefully a successful test of the March low (around 1252) given the high volume at both lows.  If it gets down there on much lower volume then it will be considered a successful test suggesting a larger upmove in the works.  Whether such move is longer lasting or not we will have to wait to see based on the volume.

I also strongly suggest readers check out recent interview at financialsense.com about uranium and rare earth stocks.  If we have a bigger pullback later this year, where the stocks get close to support and some of the targets I suggested, then I would still be willing to get into uranium stocks based on that interview.

http://www.financialsense.com/financial-sense-newshour/guest-expert/2011/06/22/james-dines/james-dines-on-uranium-the-buy-of-a-lifetime